Rumors are that China's e-commerce giant Alibaba Group Holding Ltd is interested to expand its business in Indonesia, attracted by the nation's per capita GDP growth as well as rising smartphone and Internet penetration. Alibaba may invest in Indonesian online shopping facilitator Tokopedia. Tokopedia, established in 2009 by William Tanuwijaya and Leontinus Alpha Edison, is one of Indonesia's biggest online marketplaces.
People familiar with the matter said Alibaba is interested to buy a USD $500 million stake in Tokopedia, thus it would be joining Tokopedia's existing backers SoftBank Group Corp and Sequoia Capital. It could also mean that a deal between Tokopedia and Chinese e-commerce major JD.com (a rival of Alibaba) - which was previously reported - would be off the table.
In April 2016 Alibaba had already obtained a controlling 83 percent stake in Southeast Asia-based e-commerce platform Lazada Group SA for a price of USD $1 billion.
Southeast Asia (and Indonesia in particular) is an interesting market for Alibaba (especially as growth at home - in China - as weakened) because the region is home to 560 million people (of which an estimated 35 percent are online and thus potential online shoppers). Hence, there exists a potentially big customer base. Moreover, considering both Internet and smartphone penetration are rising rapidly in this region, there is plenty of room for growth in the years, or even decades, ahead. Currently, less than 5 percent of retail sales in the Southeast Asian region are conducted online.
According to Macquarie Research, Indonesia's e-commerce market will climb to USD $65 billion by 2020 from only USD $8 billion at end-2016, no wonder foreign parties become interested.
However, Southeast Asia also forms a challenging environment for online retail companies because the area is characterized by tough logistical issues (partly due to the relatively weak state of infrastructure) and there remains a lack of warehousing facilities outside the more advanced markets such as Singapore. The Indonesian government has been eager to boost the country's infrastructure development in order to enhance connectivity (combat high logistics costs) and thus improve local businesses' competitiveness. Indonesia's improving infrastructure - albeit requiring plenty of time - therefore benefits online marketplaces such as Tokopedia.
If Alibaba expands its influence in Indonesia through the Tokopedia deal (after last year's acquisition of Lazada that also has a strong presence in Indonesia), it can result in two trends: (1) due to the stronger ties between China and Indonesia's e-commerce industry there could emerge an increasing flow of Chinese products into Indonesia, and (2) it threatens the position of local Indonesian start-up e-commerce businesses because with the backing of Alibaba both Lazada and Tokopedia obtain great financial strength to engage in business expansion and improve their market share.